A new system would cost $15,000 per store or $2,955,000 for all 197 locations and will result in an annual return of $985,000. Neither the old or new system (tags included) will have any salvage value at the end of its seven (7) year life span. The income tax rate is 40 percent.

 

1. As mentioned, the Security Director had some difficulty in convincing the Board and executive officers of the $985,000 additional annual revenue. If the following probability distribution applied to each year's additional revenue and the Board and executive officers wanted to make its decisions on the basis of the expected value of this additional revenue, should they invest in the new system?
2. 

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Probability Additional Revenue $ % .10 .35 .25 .15 .10 .05 750,000 985,000 1,025,000 1,200,000 1,350,000 1,700,000 Probability Additional Revenue $ % .10 .35 .25 .15 .10 .05 750,000 985,000 1,025,000 1,200,000 1,350,000 1,700,000

Answer rating: 100% (QA)

Total Cost of System 2955000 Total Additional Revenue 147375... View the full answer